The Affordable Care Act Is Not So Affordable

September 25, 2013

The public relations battle over the cost of health insurance in the exchanges is in full roar. State insurance commissioners and health insurance exchange boards, eager to prove to taxpayers that they are doing their jobs, have announced that they will save consumers plenty of money -- or at least not cost them too much more. Critics of the Affordable Care Act (ACA) dig into the rate filings and find unconscionable increases in premiums, says Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

American Progressive Life and Health Insurance Company offers a silver plan whose premium is $466.81 a month in New York state.

If a customer chooses that plan, they will pay the subsidized premium of $55 plus the difference between the two unsubsidized premiums.

That comes to $172.67 a month, or $2,072 for the year -- not the $660 promised by state officials.

For most people with low incomes, higher cost plans that offer better access will be out of reach financially despite the exchange subsidy.

Buying health insurance on a wait-and-see basis will be a good strategy for many people.

Insurers cannot turn you down if you skip a year, and your premiums can't be increased either.

The exchange subsidy is tied to your income, not whether you followed the rules. And there is a good chance that the Internal Revenue Service will not be able to collect the penalty, since it is limited to taking the money out of your tax refund.

Half of American households do not even file federal income tax returns and are not subject to the penalty, and the rest can adjust their withholding to avoid the penalty.

The individual mandate will cause some people to buy exchange coverage who otherwise would not have done so, but not because of the penalty.

Purchasing health insurance through the exchanges will be complicated and the plans will be expensive, even with sizable federal subsidies. That will disappoint many of the uninsured, who are counting on health reform to give them easier access to affordable insurance. But they are not the only people who will find that the Affordable Care Act does not live up to their expectations.